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Federal Legislative and Regulatory Issues
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Capital-Loan Loss Reserves
The current regulatory
threshold, which states loan loss reserves above 1.25 percent of
risk-weighted assets cannot be included in calculations for meeting
regulatory capital guidelines, should be reviewed. Banks have prudently
reserved above this level in the current climate in order to protect
against possible losses. This is real capital that banks have on hand
and is available. By removing the cap, banks will have stronger
capital ratios without affecting the safety of the system. John Dugan,
former Comptroller of the Currency, the principal federal
regulator for national banks, has suggested removing this arbitrary cap
and allowing 100% of the bank’s allowance for loan losses to count
towards regulatory capital. As Dugan says, “If any counts, why not all?”
We fully support this change which would require interagency
cooperation among the OCC, FDIC, and Federal Reserve. |
GBA's professional staff represents the membership at the both the state and federal levels. Contact any of them with questions about issues:
Joe Brannen |
